THE IMPACT OF FREE CASH FLOW ON THE FIRM VALUE. Undergraduate Thesis. Presented as Partial Fulfillment of the Requirement for the Degree of

Transcription

1 THE IMPACT OF FREE CASH FLOW ON THE FIRM VALUE Undergraduate Thesis Presented as Partial Fulfillment of the Requirement for the Degree of Sarjana Ekonomi (S1) in Accounting Program Faculty of Economics Universitas Atma Jaya Yogyakarta Written By: Arief Shylvie Kumara Profita Student ID: FACULTY OF ECONOMICS UNIVERSITAS ATMA JAYA YOGYAKARTA 2016 i

2

3

4

5 ACKNOWLEDGEMENT First of all I would say thanks to God Almighty for allowing me to finally finish my thesis writings. By His power and strength, I could eventually carve my finale project which entitled The Impact of Free Cash Flow on the Firm Value to accomplish my undergraduate program requirements. I would also like to express my deepest gratitude for everyone who supports me to finish my thesis writings from the beginning until the end. By this chance, I wish to thank them in person. 1. Mrs. Dra. Dewi Ratnaningsih, MBA., Akt. as my undergraduate thesis advisor. Thank you for being patiently taught me and giving me a lot of advice and suggestions during the consultation. For being such a good listener when I faced a problem in my writing process. 2. My beloved father, Daryana and my beloved mother Siti Farida Oktaria, for endless prayer, compassion, support, and motivation to courage me finishing my thesis. My beloved sister Azis Fitri Profita Aznam, for accompanying me doing ridiculous thing when I get bored and exhausted writing my thesis. Words would never be enough to say thank you to all of you. 3. For IFAP batch 2011, Stefi, Vini, Ivana, Debby, Stelah, and Vendix, merci beaucoup for being the most supportive classmates I ve ever had. I m so grateful to God which somehow allows me to cross your path and unite us as one family at a time. I had an amazing, wonderful, and splendid days v

6 spent with you during my years in university. I hope all of you will have a successful career, bright future, and most of all is success in life the way you want them. 4. For Marlisca and Nurul Panca Nugrahanti Rahayu, gracias senorita for being my best friends for 10 years and still counting. I m glad we re aged gracefully. Your presence makes my life become more colorful yet meaningful. It s been such blessings to have you both appear in my life. I wish you will find your other half and way to happiness and peaceful life. 5. For all lectures that has been taught me during my study in university. Thank you for sharing all your knowledge and made me the person who I am today. May God reward your kindness. 6. For my aunts, all TOAA (Tim Olimpiade Akuntansi Atma Jaya) friends, my boarding house friends, my landlady, and friends and acquaintance that I cannot mention one by one. I recognize that there are a lot of imperfections in my thesis writings. I would be delighted to receive any suggestions and advice to enhance my thesis. In the end, I wish this thesis will be helpful for the readers. Yogyakarta, 14 March 2016 Arief Shylvie Kumara Profita vi

7 Motto For indeed, with hardship will be ease. Indeed, with hardship will be ease. (Al Insyirah 94:5-6) Knowledge comes from learning. Wisdom comes from living. -Anthony Douglas Williams Remember that the reason you re doing this is to make your life better. Today, pick your own pace and your own path. We all need a day to slow down, regroup and recharge. Everything will be alright in the end. If it is not alright, it s not yet the end. -Deborah Moggach I dedicated this thesis for: Allah SWT My family vii

8 TABLE OF CONTENT TITLE PAGE... i SUPERVISOR APPROVAL... ii THESIS APPROVAL... iii AUTHENCITY ACKNOWLEDGEMENT... iv ACKNOWLEDGEMENT... v MOTTO... vii TABLE OF CONTENT... viii LIST OF TABLES xi LIST OF PICTURE... xii LIST OF APPENDICES... xiii ABSTRACT... xiv CHAPTER I INTRODUCTION Background Research Problem Objectives of Research Contributions of Research... 6 CHAPTER II THEORITICAL FRAMEWORK AND THE HYPOTHESIS DEVELOPMENT Theoretical Framework Free Cash Flow Agency Theory Firm Value viii

9 2.2 Previous Research The Hypothesis Development CHAPTER III RESEARCH DESIGN Type of Research Population and Sample Type and Data Collection Method The Definition and Measurement of Research Variables Dependent Variable Independent Variable Control Variable Research Model Data Analysis Technique Descriptive Statistics Analysis Classical Assumption Test Normality Test Multicollinearity Test Heteroskedasticity Test Autocorrelation Test Hypothesis Testing...37 CHAPTER IV DATA ANALYSIS AND DISCUSSION Sample Selection Descriptive Statistics ix

10 4.3 Classical Assumption Test Normality Test Multicollinearity Test Heteroskedasticity Test Autocorrelation Test HypothesisTesting Discussion CHAPTER V CONCLUSION AND SUGGESTION Conclusion Suggestion REFERENCES x

11 LIST OF TABLES Table 4.1 Sample Selection Table 4.2 Descriptive Statistics Table 4.3 One-Sample Kolmogorov-Smirnov Test before Trimming Table 4.4 Normality Test after Trimming...42 Table 4.5 Normality Test after Transformation Table 4.6 Multicollinearity Test Table 4.8 Durbin-Watson Test...46 Table 4.9 Model Summary of Hypothesis Testing xi

12 LIST OF PICTURE Picture 4.7 Scatterplot Diagram xii

13 LIST OF APPENDICES Appendix A. List of Manufacturing Company Appendix B. Publication Date of Financial Reports Appendix C. Price to Book Value Ratio Appendix D. Free Cash Flow Appendix E. Debt Ratio Appendix F. Firm Size xiii

14 THE IMPACT OF FREE CASH FLOW ON THE FIRM VALUE Written by: ARIEF SHYLVIE KUMARA PROFITA NPM: Supervised by: Dra. Dewi Ratnaningsih, MBA., Akt. Abstract This study aimed to investigate the impact of free cash flow on the firm value. Manufacturing companies that listed in Indonesia Stock Exchange is chosen to be the sample of research and 303 companies during were selected as the sample. Firm value is the investor s perception towards the degree of success of a company. According to several previous researches, free cash flow becomes one of the factors that affect firm value. Some research said that the more free cash flow generated by the company, the higher the firm value. The other research found distinct result where the higher free cash flow owned by the company, the lower the firm value. thus, there is still a conflicting result regarding the effect of free cash flow towards firm value. Free cash flow is calculated using the formula from Wang (2010) which later modified to adjust with certain regulation in Indonesia. Firm value is calculated by price to book value ratio. The result of study comes up with a conclusion that free cash flow has no positive impact on firm value. Thus, whether or not the company possesses free cash flow, it will not affect firm value as a whole. It is essential to have skillful manager that has the capability to manage free cash flow in order to utilize the cash for value-improving activity and not wasting it for unprofitable investment. Keywords: free cash flow, firm value, price to book value xiv